Ten Ways to Win: #10 – Be willing to be a backup contract and consider older listings

What is a “back up” Buyer?  A back up Buyer is first in line to purchase a home if the “Primary” Buyer is unable or unwilling to perform on a contract.   It happens.  The Primary purchaser loses their job or breaks up with a girlfriend.  Three weeks into the transaction, the contract falls apart.  The first phone call is to the “back up” Buyer.

 

If you have made an offer on a great home and your offer wasn’t chosen, ask your Buyer’s Agent to inquire about acceptable terms for a “back up” offer.   The language of a backup offer allows you to continue to look for homes and to rescind the backup offer at any time before being moved to Primary position.  So, it’s a no-harm-no-foul move.  You can be a backup offer for as many homes as you wish.  Sooner or later, one is going to come available, and you will be first in line to grab it.

 

Another option:  consider the listings still on the market 10 days or more.  These are the listings passed over by other Buyers, but they could be an attractive choice for you.   Why were they passed over?  Most likely because the Seller overpriced their home.  They have missed the opportunity for multiple offers in the first days on the market and now they are waiting for you to come along with all the negotiating options in your hands.

 

 

This blog is written by Kathy Chiero.  Kathy is the Team Lead for The Kathy Chiero Group of Keller Williams Greater Columbus Realtors.  Thinking of Buying or Selling?  Find us www.OurOhioHome.com © 2021 All rights reserved.

Ten Ways to Win: #9 – How Flexible are your plans?

To understand “Win” #9 you must first understand a quirk about the Central Ohio Housing market.  In many states in the United States the law prohibits the Seller from having possession of the home after the closing is complete.  In Ohio we do NOT have this prohibition.  This prohibition of post-closing possession is rooted in good law, insurance practice, and common sense:  a myriad of problems can occur after closing and before the Seller turns over the keys.  What happens if that bed rail gashes the drywall on the way down the stairs?  What happens if close on Friday lightning strikes the roof on Saturday?  What is your recourse if the Seller spills a bucket of paint on the carpet on their way out?  Rare occurrences?  Yes, but I’ve had them all happen between the closing date and the date the Buyer has possession of the home.

 

In Ohio, we call it “courtesy possession” and it is legal.   Better agents will put together a document called an “Occupancy After Transfer of Title” agreement which at least puts in writing the basics of responsibility during this time.  However, “life” happens and, as a Buyer, you need to be prepared for damage or surprises in your home while the Seller is still living there.  There is a simple solution: write the contract to demand the Seller turn over the keys at closing.

 

Sounds simple? It is, unless you’re competing with multiple other buyers for the same home.  In this very common occurrence, your ability to give the Seller the home for whatever length of time they need after closing can be key to you “winning” the bidding war.  For your consideration: are you intellectually and temperamentally OK with taking that risk?  If not, your Realtor should not push you to do so.  However, know that NOT allowing this possession may cost you the house.

 

If you are flexible on possession, what protections can be put in place?  First of all, the agreement cannot be “open ended.” There has to be a date and time at which you can move into your home and, if you have purchased the home with a mortgage, your lender will require you move in within 60 days.   Insist on an Occupancy After Transfer of Title Agreement even if post-closing possession is a weekend.  This agreement lays out the basic tenants of the Seller’s occupancy of your home, sort of like a mini lease agreement.  Ask for proof of “renter’s insurance” to cover the Seller’s belongings while they are living in your home.

 

Does the Seller pay for this time in the home?  It depends.  If another bidder on the home has given them extended possession at no charge you might get beat out if you ask for “rent” during the time they are staying in the home.  However, many homeowners are willing to pay you for the convenience of staying in the home.  A good Buyer’s Agent can advise you.

 

In reality, Sellers tend to move out of the home the same way they lived in it.  Did it show “pride of ownership” when you looked at the home? The homeowners will very likely move out and leave you a pristine home: so, the same ‘pride’ guides their moving out.  This flexibility can be the deciding factor to allow you to “win” in a very competitive market.

 

 

This blog is written by Kathy Chiero.  Kathy is the Team Lead for The Kathy Chiero Group of Keller Williams Greater Columbus Realtors.  Thinking of Buying or Selling?  Find us www.OurOhioHome.com © 2021 All rights reserved.

Ten Ways to Win: #8 – How can I give the homeowner more money?

I won’t show you a house until we have a pre-house-hunt “sit down.” At The Kathy Chiero Group we call it a “Buyer Orientation meeting” and we insist that you take an hour of your time to get informed before we start looking at homes.  We often go a step further and ask you to invite all of the “influencers” in your home purchase decision: parents, Aunts, Uncles, or your Grandparent who is providing the down payment. Everyone is invited to attend this first meeting.  Why?  Because we want you to understand what a “seller’s market” really means.  Unless you “live” in this market — you don’t know and won’t be prepared for the decisions you’ll have to make.  Your parents might remember the “seller’s market” of the 1990s and respond with a “ho hum” — no big deal, you might not get much negotiation off the price, but it’s otherwise business as usual.

 

No, it’s not.  Not even close.  And if you’re not mentally, financially, or temperamentally prepared you are in for a frustrating ride.

 

Here is how I describe the current Seller’s market:  You are sitting at a poker table.  The Seller of the home you want sits across from you.  Also at the table are 10 other poker players with varying stacks of chips who are competing against you to “win” the same home.  How do you win? You put two hands around your chips and shove them all over to the Seller’s side.  And, in doing so, you hope that the other ten players have fewer chips than you do because they are all doing the same thing.  Bottom line:  there is no negotiation.  On anything.  The offered price begins at list and goes up.  The financing has to be strong, preferably cash with a letter from a known, local lender (See Ten Ways to Win #1) You waive your right to ask for repairs after the home inspection. In fact, while we don’t recommend it, some buyers will waive the home inspection completely.  You must have extra cash to give the Seller over and above what the house appraised for (see Ten Ways to Win #7).  You offer non-refundable earnest money.  You close when the Seller wants to close.  You give the Seller as much time as they need in the home after closing. At no charge.  If you do ALL of these things — you are doing what most of your competitors around the table are doing.  In other words, these (non) negotiables are just a start.  What else can you do?

 

How can you put money in the Seller’s pocket in creative, non-traditional ways?  This is where a good Buyer’s Agent can help you.  Your Buyer’s Agent can make a phone call to the listing agent to find out what the Seller needs: is the home in need of clean out?  Are you willing to do the clean out so that the Seller doesn’t have to?  What are their moving plans?  Can you contribute $500 to the rental of a truck for their move?  Instead of raising the purchase price, can you contribute $1000 toward their closing costs, thus increasing their “net” at closing?  These are the “extras” that often tilt a decision your way.

 

As you read this over you begin to see why it’s important to have all of your “influencers” on board because most of what this market requires runs completely contrary to traditional negotiating.  That is because this market is NOT a traditional market.  It is an historic market that we may not see again in our lifetime.  To “win” in this market requires very non-traditional methods and a sharp Buyer’s Agent who knows how to negotiate: giving enough, but not outside your comfort level.

 

 

This blog is written by Kathy Chiero.  Kathy is the Team Lead for The Kathy Chiero Group of Keller Williams Greater Columbus Realtors.  Thinking of Buying or Selling?  Find us www.OurOhioHome.com © 2021 All rights reserved.

Ten Ways to Win: #7 – Should I limit my offer to the  appraised value of the home?

While this Tip is #7, it should be #1 in the Central Ohio Seller’s market.  Let’s start with the harsh truth and then I will break it down:  It is virtually impossible to purchase a newly listed home without a willingness and ability to pay above the appraised value of the home.

 

Let’s picture the Central Ohio housing market as the bread aisle in the grocery store.   There are five loaves of bread on the shelves marked at $3 each and 30 buyers who have come to the store to buy a loaf.  With this uneven supply and demand, why are there even five loaves on the shelf?  Because those loaves have mold.  Or they are two weeks old.  Or they are burnt on the bottom.  The consumer has already looked over the existing bread inventory and (even in a time of bread shortage) has determined the loaves are not worth $3.  These loaves of bread won’t sell unless the price is reduced to overcome the consumer’s objections.

 

The baker brings out a just-out-of-the-oven fresh loaf of bread.  The 30 waiting buyers pass the day-old offerings and fight over the new loaf.  The loaf is priced at $3.  Because there are 30 people who want it, the baker pulls the loaf onto his side of the counter and says he will sell to the highest bidder.   Some bid $4 or $5.  Some have to leave the store because they only brought $3.  Some are angry and feel it’s unfair to have to pay more than the sticker price. One person bids $10 and the remaining crowd leaves thinking the $10 bidder is foolish.  The “value” of the bread is shown on the price tag and its only “appraised at” $3.  But is it?  Everyone is mad at the baker for being greedy.  But is he?  The $10 Buyer goes home with the fresh loaf. The baker pockets his $7 profit.

 

This is how appraisals work: An appraisal is a document ordered by the bank or mortgage provider to give the lender some assurance that the home is worth, at minimum, the mortgage they are prepared to provide.  That’s it.  Beyond the day of closing that piece of paper is virtually worthless.   A Buyer in a Seller’s market must understand, grasp completely and “buy into” the understanding that appraisals are not concrete values.  They are the opinion of one licensed professional on one day.  If I were to have ten licensed appraisers go to a home on the same day to tell me it’s value, I would likely get ten different values.  The values will likely be close, but different.   When demand for a home is so high that someone has the funds and willingness to pay significantly over appraised value, the unwilling or unable consumers are going to lose.  Every time.  So, is the value only $3 if someone is willing to pay $10?  Is the Seller “greedy?”  They simply accepted the offer of a willing Buyer.

 

The Central Ohio purchase contract provides a protective contingency to the Buyer: if the home does not appraise at or above the contracted purchase price, the Buyer is not required to purchase the property.  Neither is the Seller required to sell it for less than what the Buyer offered.   When there are multiple offers on a property it is common for a Buyer to put in writing that they voluntarily waive this contingency and will pay the offered price no matter what the home appraises for. Or they may limit that overage by saying “Buyer agrees to pay $5000 over appraised value, not to exceed a purchase price of $__________.”

 

In real numbers:  You find a house you love for $300,000.  You have loan terms agreed upon with your lender that you are putting down 5% of the offered price on the home you buy.  On a $300,000 home, you must bring $15,000 to closing as your down payment.   You really love this home and offer $310,000 and waive the contingency that the home must appraise.  If the home only appraises for $300,000 you must bring $15,000 as your agreed upon down payment AND an additional $10,000 to cover your offered price.  The lender will not “mortgage” any more than what the home appraised for.

 

Why would a Buyer do this? Because when a home is a new listing it is likely the only way to “win” the competitive bid battle.   What are your options if you don’t want to pay over appraised value?  You’ll notice I’ve addressed these bid battles under the umbrella of “new” listings.  Let’s go back to the five unsold loaves of bread on the shelf.  If you find a home that has been on the market 10+ days, it likely means the home is overpriced and the Seller has put their home back into a “Buyer’s Market.”  All of the negotiating options are in your hands, including limiting your price liability to appraised value.

 

If it is a new listing (7 days or less) a buyer has virtually no chance of “winning” the bidding war unless they have and are willing to offer cash above appraised value.

 

 

This blog is written by Kathy Chiero.  Kathy is the Team Lead for The Kathy Chiero Group of Keller Williams Greater Columbus Realtors.  Thinking of Buying or Selling?  Find us www.OurOhioHome.com © 2021 All rights reserved.

Ten Ways to Win: #6 – Are you willing to let the Seller off the hook for repairs?

The purchase contract you will sign offers you, the Buyer, the protection of a home inspection.  The inspection is usually done by a professional and can take three or more hours to thoroughly look over your new home.  Following the inspection, you have three choices: the right to move forward with no repair requests, the right to terminate the contract, or the right to ask the Seller to do repairs on the home prior to closing.

 

In a typical market the choice most often made by home buyers is the third: move forward but ask the Seller to do repairs to the home.  We call this a “Request to Remedy”.  The Seller either agrees to all of your requests or both parties come to a compromise.  If neither of these outcomes is possible, the Buyer has the right to walk away from the purchase.  In this competitive market you can make your offer more attractive by retaining the right to terminate and the right to move forward but by waiving your right to ask for any repairs.  This means that unless something is a catastrophic condition you are willing to take on deferred maintenance or needed repairs as your own post-closing projects.

 

How risky is this? I asked Jim and Laura Troth, owners of Habitation Investigations LLC, one of the top home inspection companies in Central Ohio.   With 18 years and thousands of Inspections under their belts Jim and Laura have seen it all.  How often do they see “walk away” issues with a home?  “Almost never,” says Jim.  Unless it is a vacant home in great disrepair the vast majority of issues in a home are very “fixable” and not worth sacrificing the purchase of a home.”  “It depends on the Buyer’s personal skills,” says Laura. “if they are a little bit handy or have friends or family members who have home maintenance experience, most home repairs are manageable and not emergencies.” Jim says the Buyer should be concerned about the immediate repair of safety issues and keep a budget in mind for bigger repairs.  “We leave the Buyer with a detailed report including pictures and a repair so that the Buyer can begin prioritizing needed repairs” says Jim.

 

Jim and Laura have a list of items that often scare buyers: and they shouldn’t.  “Minor cracks in the walls, moisture in the basement or crawl space, mold in the attic or basement: these are common, not a tragedy” says Jim, and certainly not a reason not to buy a house.  Laura notes that they have taught their own daughters to change out plumbing fixtures and even things like switching out windows is not hard once you’ve done it a few times.  “Understand the real cost of some of these repairs,” says Jim.  “Often you’ll find it’s not as expensive as you thought.”

 

Besides giving the Seller a huge incentive to choose your offer, this willingness to take on repairs after closing gives you the peace mind that the repairs were done correctly because YOU did them or hired your preferred professional.

 

 

This blog is written by Kathy Chiero.  Kathy is the Team Lead for The Kathy Chiero Group of Keller Williams Greater Columbus Realtors.  Thinking of Buying or Selling?  Find us www.OurOhioHome.com © 2021 All rights reserved.

 

Ten Ways to Win: #5 – Are you willing to hug the ugly house?

I’ve been a Realtor for over 20 years.  I’ve seen it over and over.  At the initial Buyer’s Orientation Meeting I ask the Buyer if they are willing to contribute “sweat equity” to the home?   Are you willing to paint? Replace carpet? Replace toilets and sinks? Hang new light fixtures?  The eager almost-homeowner always says yes.  Then we begin looking at houses and inevitably they walk away from the “ugly” house and choose the “perfect” house.  They jump in a “free for all” competing with 10 other buyers for the house which has been shined to perfection by the current homeowner.

 

What many first-time buyers don’t realize is that houses are not complicated.  Cars are far more complicated to maintain and repair than houses.  With the exception of the skilled trades: electric, plumbing, HVAC, and roofing there is very little that a somewhat skilled or ready to learn homeowner can’t learn on YouTube.  Light fixtures need replaced? That’s an easy 1-hour project and very small investment.  Do carpets need replaced? Are you willing to pull up the old carpet? Save some money purchasing wholesale or remnant carpet?  You can transform a room with a can of paint and some new flooring.

 

Doing these kinds of projects, yourself contributes to your investment in two ways: you are going to pay less for the home and are less likely to be competing with other buyers and you are adding value to your home without increasing your mortgage.  How do you get comfortable with tackling these projects yourself?  Enlist help.  Begin watching on-line help videos.  Sherwin Williams, for example, has a whole section of helpful videos at www.sherwin-williams.com   Visit your local big box hardware stores.  These stores are often staffed by men and women who are there because they have interest and skills in their department — they can be a great source of advice and help.  Ask friends and family members to walk you through a first project.  If you do these things BEFORE you find that “ugly” house, you will be comfortable with the challenge when you walk into the house that needs your love!

 

The big payoff for doing it yourself is the satisfaction of an improved home that you love that you have made it perfectly “yours” and you put your own money into your investment.

 

 

This blog is written by Kathy Chiero.  Kathy is the Team Lead for The Kathy Chiero Group of Keller Williams Greater Columbus Realtors.  Thinking of Buying or Selling?  Find us www.OurOhioHome.com © 2021 All rights reserved.

Ten Ways to Win: #4 – It’s true.  Cash is king. (Even if you only have a little.)

You’ve worked hard.  You’ve sacrificed. You’ve saved money.  You have your down payment and closing costs saved to purchase your first home.  Or perhaps you have saved only your down payment because you remember hearing that it is customary for the Seller to pay your closing costs.   You have just enough.  And you believe that’s enough.  Unfortunately, in a market where there are five or more Buyers for the home you want it’s not enough.   Not nearly.

 

In a “hyper” Seller’s market like the one existing today in Central Ohio you’re going to need cash above and beyond the traditional “basics” of home buying.   Why? Because you have to offer something that your competitors (others who want the same house) are not offering.  All buyers have saved appropriate down payment.  All buyers have saved for closing costs.  What the winning buyer will have is an extra $2000 or more to give to the Seller in “extras”.

 

If you don’t have extra cash available to you, you need to plan into your home purchase time to earn extra money above the down payment and closing costs needs.  Call it a “side hustle” or pulling from your 401K — you will need to have cash to be used in a variety of ways.  The most common way we see cash “win” is in the form of the Buyer (you) offering to pay the Seller thousands of dollars over the appraised value of the home.  “Who would do that?!” you might ask.  Answer: The Buyer who wants a house in Central Ohio.  I have sold hundreds of homes in this market and can count on one hand the number of “winners” in a multiple bid scenario who did not offer to pay some dollar amount over the appraised value of the home.  This can be as little as $2000 or as much as $20,000 or more.  Another way to use your cash to win is the reverse of a home buying standard: The Seller contributing toward the Buyer’s closing costs. In a Seller’s market we can leverage your cash to pay some of the Seller’s closing costs, thereby increasing their “net” at closing.

 

Where can you get that extra cash?  Look at it as short-term pain for long term gain. Take a second job with a commitment to put all of your earnings in a separate “house” account until you saved $2000 or more.  Sell something.  I recently helped a young Buyer, Craig. Like many first-time home buyers, he had saved his down payment and closing costs.  Understanding the market, he knew he needed a way to come up with an additional $3000 before he was prepared to make an offer on a home.  He remembered his non-working truck stored in his parent’s garage.  He always intended on getting the truck running.  However, after some thought Craig decided that owning a home was more important than the truck.   Craig sold the truck for $1800 and took a second job with Lyft.  It took three months but by the time we wrote an offer he had $2700 to contribute to “extras” and today is a homeowner.

 

 

This blog is written by Kathy Chiero.  Kathy is the Team Lead for The Kathy Chiero Group of Keller Williams Greater Columbus Realtors.  Thinking of Buying or Selling?  Find us www.OurOhioHome.com © 2021 All rights reserved.

Ten Ways to Win: #3 – What is a Pre-Approval Letter?  (And I thought I had one!)

We live and work in a “one shot” housing market.  What does this mean?  It means that, as a Buyer, you have “one shot” to get the Seller’s attention and to move your offer to the top of the competitive bid pile.  Critical to your chances in this market is assuring the Seller that you have completed your mortgage due diligence and that you are qualified to buy a home.   This assurance is in the form of a “Pre-Approval” letter provided to you by your bank or lending institution.  This letter accompanies your offer to be presented to the homeowner and is key to their choice of a buyer for their home.

 

This letter begins with an on-line application, says Jeff Lichtenstein, a Senior Loan Officer with Ruoff Mortgage in Columbus.  In that on-line application the borrower will be asked where they work, how long they have been in their job/s, salary, debts and permission to run a credit report.  “When filled out completely,” says Jeff, “I can have a Pre-Approval letter in ten to 30 minutes.”  Optimally, that letter should have the address of the home to be purchased, the qualifying amount, the down payment and the type of loan (FHA/VA/Conventional) for which you are approved.

 

When do you get this letter? Before you walk into that “must have” kitchen.  Many times, “dream homes” are found on weekends and scrambling to get a letter on a Sunday afternoon is a challenge.

 

What else can you do?  While the loan officer cannot put additional information into the Pre-Approval letter, they can, with your permission, brag on you in a cover email.  Ask your loan officer to add a “cover” email to your letter stating your credit score, your verification of down payment funds, and the security and/or longevity of your job. All of these extras can give you a competitive edge.  This is especially important if you are an FHA or VA Buyer in a market where the conventional borrower has the competitive edge (see Ways to Win #1).

 

Next, get ready to jump through hoops:  any and all and instantly when asked.  “Most delays,” says Lichtenstein “are because the Borrower doesn’t provide us the documentation we ask for.” It’s important to understand that these requests for documentation are not suggestions or “it would be nice if…”.  Your loan officer is working under strict federal guidelines with no room for compromise or workarounds.  Lichtenstein, a 33-year veteran of the mortgage industry, has plenty of tales of borrowers who believe delay in providing the documentation will result in “forgetting” the need for it by their loan officer.  Not going to happen, says Lichtenstein.  “I don’t get the documentation; you don’t get the house.”

 

Another important suggestion:  be honest from Day #1.  If you had a car repossessed five years ago: put it on the table now. Secret bank account? There are no secrets when you are applying for a mortgage.  (In fact, this is the time to make sure your spouse or significant other knows your financial dirty laundry — it’s all going to come out!)  If your loan officer is given negative information up front a solution can be created or save wasted effort by stopping the process and help you “rehab” your credit.

 

 

This blog is written by Kathy Chiero.  Kathy is the Team Lead for The Kathy Chiero Group of Keller Williams Greater Columbus Realtors.  Thinking of Buying or Selling?  Find us www.OurOhioHome.com © 2021 All rights reserved.

Ten Ways to Win:  #2 – Choose your lender Carefully

How important is your mortgage provider to the purchase of your new home? Look up the word “cornerstone.”  The cornerstone is the first stone set in the construction of a masonry foundation. All other stones will be set in reference to this stone determining the position of the entire structure.  Yep.  That’s your lender’s role in your home purchase.   A good Realtor is essential to making a good choice.  A good title company is great for closing the deal. However, with the exception of cash buyers, the lender is pivotal to determining how smooth (or not) your home purchase will go.

 

Where do start in finding that lender?  The temptation is go to the internet and find your lender on line.  There are quite a few lenders promising speed and simplicity at your fingertips.  But, in a competitive housing market like Columbus having a local lender is important.  Why? A logical response from buyer is “If money is at the closing table, why should the Seller care where it came from?”  Well, that “if” is the big “IF”.  If money is at the closing table.  The process of getting your loan is a complicated one with a myriad of eyes on you and your credit worthiness. It ends at an underwriter who gives your loan the final “yes.”  One bump in the process can cause stress, anxious nights, delays in your closing date, juggling of movers and utilities and, at worst case, a “no” at underwriting.

 

So why go local with your lender?  Here is why from a Realtor who sells hundreds of homes a year  often advising my homeowners in choosing the right Buyer for their home:

 

Local lenders have local teams.  This means that even when your loan is handed off to a colleague — that colleague is a desk over, not a department over or even a zip code over.   This also means a good one always has his or her eye on the transaction and is alert to “bumps” and keeping the transaction on track.  Rachel May-Sine is the Regional President at American Eagle Mortgage.  American Eagle has offices all over Columbus.  The May-Sine team works the loans of hundreds of Buyers a year.  “I have worked with the same underwriter for over 25 years.  We read each other’s minds.”  What this means to the Buyer: Rachel can make a quick decision knowing that her underwriter will approve when called upon to keep a loan on track.

 

Local Lenders depend on the business and referrals of local Realtors.  Does this mean they break the rules or do unethical “favors?”  No.  But it means that just a like serving a great meal at a restaurant, pleasing us means we will be back.  The loan officer in Detroit knows they will never see me again.  They do not owe me superior service because this transaction is likely a “one and done.”  My urgency is not their urgency.  This doesn’t mean they don’t or can’t do a good job — but I often tell my buyers: I want a lender who has a brick building with steps and a door in Columbus, Ohio.  Why? So that I can stand on the steps and pound on the door if a transaction is not being handled well.

 

“We give exceptional service to all of our clients,” says May-Sine.  “But we know ‘our’ Realtors. This means we know and service their systems and clients with an eye to their unique businesses and personalities.”

 

Shop local?  That includes lenders. Your Columbus, Ohio loan officer goes home to a home in Central Ohio.  They shop in our stores, and their kids go to our schools.  Putting money in their pockets is as important as your determination to shop at your local bakery.

 

Next week we continue our series Ten Ways to Win in a Competitive Market.  What is a good pre-approval letter?  How can my lender help push me across the winning finish line?

 

 

This blog is written by Kathy Chiero.  Kathy is the Team Lead for The Kathy Chiero Group of Keller Williams Greater Columbus Realtors.  Thinking of Buying or Selling?  Find us www.OurOhioHome.com © 2021 All rights reserved.

Ten Ways to Win: #1 – Is Conventional Financing on a Mortgage “better” than FHA or VA financing?

Columbus, Ohio is experiencing a severe single family home shortage. In some areas and price ranges there can be as many as 15-20 potential buyers for every home on the market.  For homeowners, this imbalance is like winning The Lottery.  For those wanting to purchase a home it can feel like the television show “The Bachelor.”  Buyers put their best offer forward and go home without a rose.  Again, and again.

One piece of advice given out to potential buyers by real estate professionals (including this one) is to do your best to get pre-approved for conventional mortgage financing as opposed to FHA or VA financing.  Many a sensible buyer has asked “Why? Money is money at the closing table no matter how it got there.”  The argument makes sense.  And it’s an argument that makes sense to a homeowner looking at one offer.  But what happens when a homeowner has 6 or 8 or ten offers ~  which is not unusual in this market?  Homeowners often bypass VA or FHA financing in favor of conventional or cash.  Why?  Here is what I tell homeowners.  I will test my argument against one of the best loan officers in Central Ohio:

In the absence of additional qualifying data, choosing a buyer for my home from multiple offers is much like internet dating: decisions must be made on perception when the reality may not at all reflect that first impression.  As an FHA or VA Buyer, how are you being perceived?

FHA and VA loan programs allow the purchaser to have a) less money as a down payment, as low as 3.75% for FHA or 0% for VA b) lower credit scores, as low as 640-660, c) to take advantage of $0 down payment programs which fall under the umbrella of FHA, and d) to have a higher percentage of debt relative to their gross monthly income. (Often called “debt-to-income” or DTI.)  While this widens the net for potential Buyers it widens skepticism of the person holding the rose: The Seller.  True or not:  The seller could interpret this as a Buyer with little savings, less reliable credit and no “skin” in the game.  In addition, there is an outdated notion that FHA and VA loans take longer, are more complicated and because they involve the Federal Government, have potential to get bogged in bureaucracy.  Throw that onto a pile of offers sitting on the dining table of the homeowner: true or not, you just lost to a Conventional Mortgage Buyer.

Is the conventional buyer always better?  While there are 3% down payment options for the conventional Borrower, most have 5% or more down payment, conventional mortgages require a minimum credit score of 620 and a lower debt to income ratio, and the most boastful of lenders claims a contract to close time of 15 days or less.   All of this translates to the Seller as a ‘better’ buyer i.e., a buyer most qualified to get to closing on the contract terms agreed upon.

David Arocho is Team Leader of the Arocho Team and a Branch Manager with NFM Lending.  Arocho and his staff closed over 440 loans in 2020 and is considered one of the top loan officers in Central Ohio. I asked David to “weigh in” on common perceptions. Says Arocho: “FHA doesn’t mean a lesser quality buyer and Veterans who use their VA benefits rarely have no money or questionable credit.  The vast majority of Veterans come in with very high credit scores but want the benefit of the lowest interest rate, no PMI and $0 downpayment required.  In many cases, the Veteran is just as strong as the Conventional buyer.”

How does a Buyer combat this?  First, is the perception true? Do you have little savings beyond the required down payment, a lower credit score and a high DTI?  If so, the harsh truth is that it is going to be difficult to purchase a home in the wildly competitive Central Ohio market.  It’s a challenge for lenders as well, Arocho says sometimes a Conventional mortgage just isn’t a long-term “fit” for the buyer. “As a lender, I am challenged to put an FHA buyer into a Conventional mortgage product when their payment goes up $100-150 a month with a higher interest rate and private mortgage insurance.  It’s just not a ‘win win.’”

So, how does a Buyer change the often-erroneous perception?  Many buyers will write what I call “Queen for a Day” letters.  If you don’t know what Queen for a Day is, Google it.  Instead of writing a fawning letter to the homeowner which screams “choose me!” (which we can no longer legally deliver, BTW, but that’s another blog) ask your loan office to add some “love” to your preapproval letter:  How long have you been in your job? How much money are you putting down?  What IS your credit score – (if it’s good,) and how solid are you as a borrower?   How quickly can your loan realistically close and is there any cause for delay concerns? With this kind of help and a competitive offer, your offer could rise to the top. Is a good loan officer willing to help with this kind of letter? “Yes, we sure can!” Says Arocho “Some Realtors like me to note how much down payment the Buyer has or indicate buyer can pay any difference between the appraised value and offered purchase price. I can do that – or anything else the Buyer gives me permission to share.”

 

 

This blog is written by Kathy Chiero.  Kathy is the Team Lead for The Kathy Chiero Group of Keller Williams Greater Columbus Realtors.  Thinking of Buying or Selling?  Find us www.OurOhioHome.com © 2021 All rights reserved.